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Maker of Angry Birds Shows Way for European Start-Ups

PARIS — As Silicon Valley prepares for its latest blockbuster initial public offering, a sale of stock that is expected to value Facebook at more than $100 billion, Europe can counter with the David and Goliath tale of Rovio Entertainment.

The company, developer of the “Angry Birds” games, in which players use a digital slingshot to attack egg-stealing pigs, has said it plans its own offering next year. Analysts have said the sale could value Rovio, which is based in Finland, at up to $9 billion — a small fraction of Facebook’s valuation, but huge for a European technology I.P.O.

The recent success of Rovio and a handful of other emerging European Internet companies, including Spotify, the online music streaming service, and SoundCloud, an audio sharing platform, shows that Europe can deliver innovation on a global scale. No longer are European Internet companies merely copying Silicon Valley business models, something for which they were long criticized, especially during the dot-com bubble years.

“Now you’ve got European entrepreneurs that have figured out how to build category leaders, not just clones,” said Jason Whitmire, a partner at Earlybird Venture Capital, which is active in Germany and elsewhere in Europe. “That wasn’t happening 10 years ago.”

Analysts say Rovio’s success may also offer policy makers useful lessons in how to stimulate the Internet and technology scene. In general, however, start-ups in Europe often struggle to get off the ground, finding it harder to raise money at the critical early stages than their American counterparts.

Finland has lagged behind other European countries in putting in place financial incentives, like tax breaks, for start-ups. Other factors, analysts say, have been more important in fostering the growth of high-technology ventures like Rovio.

One is creative destruction of a kind celebrated by the economist Joseph Schumpeter. Rovio is based in the same city, Espoo, as Nokia, the struggling mobile phone maker that used to be the pride of the Finnish high-technology sector. As the company loses market share, it has responded by shedding thousands of jobs — a ready pool of engineering talent for entrepreneurs to tap.

“The important thing is that the way people think has changed, especially young people,” said Artturi Tarjanne, general partner at Nexit Ventures in Helsinki. “They used to dream about going to work for Nokia or McKinsey or something like that. Now they are much more willing to take entrepreneurial risk.”

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Another vibrant European startup center, Berlin, also shows it is sometimes the things that policy makers do not do that can be most effective in luring Internet entrepreneurs. While France and Britain, for example, have put in place tax breaks to support venture investments, Germany has not followed suit.

Over the past year, however, U.S. venture capital commitments to Berlin firms have roughly tripled, Mr. Whitmire at Earlybird estimated. Big players in Silicon Valley, like Sequoia Capital, Tiger Global Management and Kleiner Perkins Caufield & Byers have all made Berlin investments.

Instead of financial incentives, Berlin has benefited from other factors, like an influx of engineers from Eastern Europe. Low rents have helped cash-strapped company founders eke out an existence. Meanwhile, analysts say Berlin has also benefited from tougher immigration rules in Britain, which have made it more difficult for start-ups and technology giants alike to add jobs in London, Berlin’s biggest rival on the European Internet scene.

“While there are certain things that government can do, to a large extent it should stand out of the way,” said Paul Zwillenberg, a partner at Boston Consulting Group.

As for Rovio, it plays down the challenges facing start-ups in Europe, compared with their counterparts in the United States. The company recently attracted a $42 million investment from a group of firms led by a big player in Silicon Valley, Accel Partners.

“You might say that the culture is somewhat different,” said Mikael Hed, chief executive of Rovio, via e-mail. “But at the end of the day dynamic businesses have the ability to attract venture capital no matter where they’re located.”